Strategic decision makers are required to be able to evaluate projects based on the long-term objectives of
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Question:
Strategic decision makers are required to be able to evaluate projects based on the long-term objectives of the firm as well as the project's ability to earn the company additional compensation. The 3 main tools used to make this evaluation are the pay-back period, net present value (NPV), and internal rate of return (IRR).
Year
Project #1
Project #2
Project #3
0
($30,000)
($32,000)
($35,000)
1
$11,000
$15,000
$11,000
2
$11,000
$14,000
$11,000
3
$11,000
$11,000
$11,000
4
$11,000
$2,000
$11,000
5
$11,000
$500
$11,000
Scenario
NPV Rate
1
5%
2
5.5%
3
6%
Using the data in the tables above, answer the following questions:
- Calculate the NPV for each project using each scenario's NPV rate. Show your work.
- Calculate the pay-back period for each project. Show your work.
- Calculate the IRR for each project. Show your work.
- Which project would the company select using the NPV method in scenario 1? Explain your answer.
- Which project would the company select using the NPV method in scenario 2? Explain your answer.
- Which project would the company select using the NPV method in scenario 3? Explain your answer.
- Which project would the company select using the pay-back period? Explain your answer.
- Which project would the company select using the IRR method? Explain your answer.
Related Book For
International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
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